How to Perform a Vendor Statement Reconciliation

Vendor statement reconciliation is a fundamental accounting practice comparing your company’s internal records of what you owe a vendor with the vendor’s own records. This process ensures both parties have a consistent understanding of outstanding obligations and maintains accurate financial records. It is important for effective cash flow management, helping prevent overpayments or missed payments. Regularly reconciling vendor statements also strengthens relationships with suppliers by ensuring billing accuracy, and provides a clear picture of liabilities for financial reporting and planning.

Preparing for Reconciliation

Before initiating the reconciliation process, gathering all necessary documents and information is essential. You will need the vendor’s statement, often called a statement of account, which outlines all invoices, payments, and credits recorded by the vendor for a specific period. Your internal accounts payable (AP) ledger or detailed records for that specific vendor are also required. This ledger contains your company’s entries for invoices received, payments made, and any credit memos.

From both the vendor’s statement and your internal AP ledger, specific data points must be readily accessible for comparison. These include invoice numbers, invoice dates, and corresponding invoice amounts. You will also need payment dates and the exact payment amounts recorded by both your company and the vendor. Organizing these details before starting streamlines the reconciliation.

It is important that both the vendor statement and your internal records cover the exact same reporting period. For example, if the vendor statement covers January 1 to January 31, your AP ledger data should also be filtered for that precise month. Checking for completeness of your internal records is also advisable, confirming all invoices received from the vendor during the period have been entered into your system. This preparation lays the foundation for an accurate comparison.

Performing the Reconciliation

With all necessary documents prepared, the next step involves a systematic comparison of the records. Begin by comparing the opening balances on both the vendor statement and your internal accounts payable ledger for the designated period. These balances should align, as they represent the starting point of the financial relationship for that reconciliation cycle. Any initial discrepancy in opening balances typically indicates an issue from a prior period that needs separate investigation.

After confirming the opening balances, proceed to match individual invoices. Compare each invoice listed on the vendor statement against the corresponding entry in your internal ledger, ensuring the invoice number, date, and amount are identical. As each invoice matches, mark it off on both documents to track your progress and identify reconciled items.

The next step involves matching payments made by your company and recorded by the vendor. Verify the payment date and amount on your internal records correspond precisely with the payments listed on the vendor’s statement. Similar to invoices, mark off each payment as it successfully matches, noting any discrepancies for later investigation. This helps confirm that funds transferred have been correctly applied by the vendor.

After matching all possible invoices and payments, identify any items that appear on one record but not the other. This could include invoices issued by the vendor but not yet received or entered into your system, or payments made by your company that the vendor has not yet processed or recorded. List these unmatched items, as they represent the core of potential discrepancies. Finally, calculate the difference between the vendor’s closing balance and your internal closing balance, factoring in all matched and unmatched items. This calculation will reveal the net discrepancy that requires further investigation.

Investigating and Resolving Discrepancies

After performing the reconciliation, any remaining differences between your company’s records and the vendor’s statement require investigation. Common causes for these discrepancies often include timing differences, where a payment or invoice has been processed by one party but not yet recorded by the other. Data entry errors on either side, such as incorrect amounts or transposed numbers, are also frequent occurrences that lead to imbalances. Additionally, missing invoices, unapplied payments, or credit memos for returned goods that have not been processed by one party can contribute to disparities.

To investigate timing differences, review your bank statements to confirm the exact clearance date of payments made to the vendor. If your payment cleared your bank account but is not on the vendor statement, it may still be in transit or unapplied on their end. For invoices appearing on the vendor’s statement but not in your system, contact the vendor to request a copy of the specific invoice. If you have a credit memo for a return that the vendor has not reflected, provide them with documentation of the return.

Resolving identified discrepancies involves several actions to bring the records into alignment. If an invoice or payment is missing from your system but confirmed as valid, record it promptly in your accounts payable ledger. When data entry errors are discovered in your internal records, make the necessary adjustments to correct the amounts or dates. For discrepancies originating from the vendor’s side, such as unapplied payments or incorrect invoice amounts, communicate directly with the vendor, providing clear documentation to support your position.

This communication might involve sending copies of cancelled checks, payment remittance advice, or proof of goods returned. Requesting missing credit memos from the vendor for returns or overpayments is also a common resolution step. Throughout this process, document all adjustments made and every communication with the vendor, including dates, names, and a summary of the discussion. This detailed record keeping is important for audit trails and for resolving any future disputes. Finally, follow up on all outstanding discrepancies to ensure they are resolved in a timely manner.